Guide to Sunset Clause Special Conditions in Queensland Contracts

When entering into a residential property contract in Queensland, most buyers and sellers focus on the purchase price, Settlement date and Finance or Building and Pest conditions.

However, other special conditions can significantly alter the rights and obligations of each of the parties. One such special condition is a Sunset Clause Special Condition (“Sunset Clause”)

While not included as a standard condition in a REIQ Contract, a Sunset Clause is sometimes negotiated between the buyer and seller to address the uncertainty that can arise while a contract remains conditional for a usually longer period of time

Understanding how this clause operates can help both buyers and sellers make informed decisions before signing a contract, whilst also protecting more-so the seller once the contract is signed.

What is a Sunset Clause?

A Sunset Clause is a condition that generally allows the seller to continue marketing the property while the contract remains conditional.

If the seller receives another offer that is more favourable than the contract on foot, they can notify the buyer and ask they go unconditional and ready to just settle.

If the buyer is unable or unwilling to do so, the seller may then have the right to terminate the contract and proceed with the new contract.

The operation of a Sunset Clause depends entirely on the wording of the clause. As each contract is different, it is important to understand precisely how the special condition applies.

Why are Sunset Clauses used?

A conditional contract provides important protections for buyers, allowing time to obtain finance approval, satisfactory building and pest reports or conduct relevant due diligence investigations.

However, from a seller’s perspective, the property is often effectively removed from the market during this period, despite there being no guarantee that the contract will proceed to settlement.

A Sunset Clause seeks to balance these competing interests by allowing the seller to continue seeking interest in the property while still giving the original buyer an opportunity to proceed with the purchase.

What does this mean for Buyers?

For buyers, a Sunset Clause means that the property may continue to be marketed while the Contract is in play with a current offer and buyer.

If another offer is received, the buyer will have to decide whether to waive any remaining conditions and proceed unconditionally towards settlement.

This may require buyers to carefully consider the status of their finance approval and any other outstanding conditions before making that decision.

Before signing a contract containing a Sunset Clause, buyers should ensure they understand:

• when the seller may invoke the clause;
• the timeframe for responding to any notice;
• what conditions, if any, can be waived; and
• the consequences if the contract does not become unconditional.

What does this mean for Sellers?

For sellers, a Sunset Clause can provide additional flexibility where a property is under a conditional contract for an extended period.

Rather than waiting for conditions to be satisfied, the seller may be able to continue marketing the property and consider competing offers, subject to the terms of the special condition.

However, sellers should ensure the clause is exercised strictly in accordance with its terms. The notice requirements, response periods and termination rights should all be followed carefully to avoid disputes.

Are Sunset Clauses standard?

No.

Sunset Clauses are not part of the standard REIQ Residential Contract, but are rather Special Conditions negotiated and inserted as special conditions where the parties agree. They are mainly for the interests of the seller, whereby a buyer may have a condition to sell their own property first, which can take months and it assists sellers on not missing out on more favourable offers from other buyers as a result.

As there is no standard form of wording, the rights and obligations created by these clauses can vary significantly from one contract to another. As such, it is important to ensure that the wording of the special condition is reviewed so that your interests are protected.

The importance of understanding the Clause

A Sunset Clause can have a significant impact on how a conditional contract operates.

For buyers, it may affect the level of certainty that the property will remain available while conditions are being satisfied.

For sellers, it can provide greater flexibility if another purchaser expresses interest before the contract becomes unconditional.

Because every clause is drafted differently, it is important that both parties understand how the provision operates before signing the contract.

Seeking Legal Advice

Whether you are buying or selling residential property in Queensland, it is important to carefully review any special conditions included in the contract.

Obtaining legal advice before signing can help you understand your rights and obligations, identify potential risks, and ensure the contract reflects your intentions.

If you have questions about a Sunset Clause, or any other condition or aspect of a Queensland residential property contract or process please do not hesitate to contact the property team at FC Lawyers.